Generation X: Don't Approach Retirement Like Your Peers

Retirement saving is often discussed as a problem for Americans, but the severity of the problem varies greatly from one age group to the next. The bad news is that Americans seem to be getting worse at retirement saving with each generation.

In a study released last month titled "Retirement Security Across Generations," the Pew Charitable Trusts looked at savings rates across five groups:

Depression babies (born between 1926 and 1935)

War babies (1936 to 1945)

Early baby boomers (1946 to 1955)

Late baby boomers (1956 to 1965)

Generation X (1966 to 1975)

The study found that Generation X is saving too slowly and accumulating debt too quickly to be on track for a comfortable retirement. If they are to turn this around, they may want to heed some of the lessons suggested by the Pew data:

Don't get sucked into a peer group standard. The Pew report paints a picture of generations that have steadily gotten worse at retirement saving since World War II. Based on their projected incomes and rates of wealth accumulation, war babies are on track to be able to replace 99 percent of their income in retirement. That number drops to 82 percent for early baby boomers, and then falls precipitously to 59 percent for late boomers, and to 50 percent for Generation X. If you are in one of those younger groups, don't base your retirement saving on the savings rates of your peers, because they may not be sufficient.

Early benchmarking is essential. The Pew study compares different generations by looking at what their financial status was at similar points in their lives. This is how it is able to project that younger generations are on a slower track for retirement saving, and this finding underscores the importance of not only starting to save early in your career, but measuring your progress from the start so you'll know where you stand.

Do some lifestyle planning. If Generation X is only saving enough to replace 50 percent of income, they are facing a severe drop-off in lifestyle when they retire. To avoid such a shock, it may be necessary to sacrifice some perks of your lifestyle now in order to afford a similar lifestyle when you retire.

Don't compound a bad situation with bad decisions. All the age groups covered by the Pew study suffered setbacks to their median net worth in the Great Recession, but while early baby boomers lost 28 percent and late boomers lost 25 percent from 2007 to 2010, Generation X suffered a loss of 45 percent. This suggests that they made a bad situation worse with bad decisions, such as ill-timed investment sales or failing to adjust their spending to declining income.

Debt undermines retirement savings. It won't do you much good to accumulate retirement savings if you accumulate large amounts of debt alongside those savings. In fact, with savings account interest rates so much lower than credit card rates, accumulating savings and debt at the same time is an especially bad deal today. The Pew study found that Generation X has more debt than any of the previous generations, which is a big reason why that generation's average net worth is lagging.

Naturally, younger generations tend to be less concerned with retirement than older ones. But the Pew study suggests that younger generations may have the most to worry about.